There are many new small companies around now. The bad news is that last year they were big companies. The collapse of dot.com businesses - some of which have lost over 90% of their share value since the peak last year - has sent a chill wind through the sector.
It shouldn't. Most of this is just the normal attrition of new small companies, some 50% of which collapse, fail or are taken over in their first four years. Some failed companies will live on in some form or other even if it is only the "back-end" computer system that is acquired by someone else.
The important thing for small companies now is to keep their heads and learn from the mistakes of the "first movers". Make no mistake - the influence of the internet will gradually embrace most industrial activities and companies refusing to adopt the web will suffer at the hands of competitors that do.
But let's not exaggerate. The most important factor influencing small businesses during the coming year won't be the speed at which they get kitted out, but the economy's performance as a whole. In all the recent industrial surveys the answer is the same - the most important thing facing small companies is lack of business. On present evidence the UK economy is expected to grow by between 2.0% to 2.5% this year. It could be thrown off course by a steep US recession, but at the moment the US economy seems to be slowing down with dignity rather than falling off the edge.
This will provide a reasonable environment for companies to learn from the early mistakes of dot.coms (like failing to deliver on time) and to be early adopters of some interesting new developments. The most important lesson in terms of marketing is that you don't have to spend a fortune on television to boost your brand. This means a goodbye to advertising blitzes on television and hello to affiliate marketing. Instead of using old economy methods, affiliate marketing uses the inherent communitarian strengths of the web.
It works roughly like this. You are selling something that is likely to be of interest to people who visit my site. I let you have space (a small advert or button) on my site that will send potential purchasers to you on condition I get 5% (or more or less) of the income arising from a purchase.
The web's electronic underbelly can monitor how effective this method is in generating sales and also limits the scope for cheating. This is not a practice that need be the preserve of big companies. Small businesses should explore mutually profitable ways they can grow together using the web as their tool.
The second way in which the web can be used as a tool by SMEs has been around for years but has still to reach anywhere near its full potential: viral or guerrilla marketing. In its simple form this involves getting the company name or what it sells high up among the "tags" that search engines look for. In its more sophisticated version it involves getting a product or brand mentioned in specialised chat rooms (which now exist for almost every subject) or passed from person to person by email or text messages. The whole practice of emailing and, even more so, text messaging (more than 600 million text messages are sent in the UK every month) was spread by word of mouth. The potential of text messaging as a marketing tool is awesome.
The third thing that will have a big impact on the pace at which small companies adopt the web is the emergence of a reliable, secure payments system. This problem (which will be explored in future issues of Small Business Solutions) is one of the big factors preventing early adoption of the web even though the scale of fraud has been greatly exaggerated. The problem is on the verge of a solution.
There are now stacks of different payment systems, ranging from the web-based scheme Beenz (www.beenz.com) to the American email-based scheme PayPal (www.paypal.com) and its new British rival PhonePaid (www.Phonepaid.com), which enables secure payment by email. You set up an account and put some money in it, then transfer money to someone else by mobile phone. When they receive it they can either opt to be sent a cheque or set up their own PhonePaid account.
In the PayPal version in the US people opted in such numbers to set up accounts that it has now become one of the most popular ways of paying on auction sites such as eBay. Another example of viral marketing.
The absence of an effective payments scheme is likely to change either this year or next. Small companies should be waiting eagerly to take advantage.
Victor Keegan is editor of the Online section
